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World Cities Summit 2024

Measuring Impact: The Way to Long-term Value Creation

Overview

More companies are moving towards creating sustainable value. However, managing sustainable value creation is challenging without measuring and quantifying it.

There is a way forward. Sustainable value can be measured through impact, which is what the Impact-Weighted Accounts Framework (IWAF) aims to do: it quantifies both positive and negative environmental, social, and governance (ESG) impacts of a company’s business activities and investments. This way, the company can know the true cost of its actions on society. The IWAF fills the gap of a missing international standard to ensure complete and consistent impact assessment that includes all capitals and stakeholders.

Approach

The IWAF expands the traditional performance measurement from financial capital (i.e., profits) to five other capitals in a company’s financial statements: manufactured capital (e.g., client value of products), intellectual capital (e.g., creation of intellectual property), social capital (e.g., contribution to the community), human capital (e.g., wellbeing of employees), and natural capital (e.g., contribution to climate change).

Through the IWAF, a company’s impact is assessed via these six capitals. A company can use the IWAF to measure, value, and report the impact from these capitals in an integrated way.

Application

Real Estate Company Headquartered in Singapore

In November 2022, SMU signed an MOU with a real estate company in Singapore to trial the IWAF. SMU’s Singapore Green Finance Centre (SGFC) uses the IWAF to quantify, in monetary terms, the impact of the company’s people initiatives.

For example, focusing on the company’s employee wellbeing events such as health screenings, the IWAF assigns a monetary value to these activities based on how they translate into higher productivity from healthier employees and lower absenteeism.

Likewise, pertaining to employee training, the IWAF helps to quantify the training programme in monetary terms according to productivity and human capital gains.

The data can then be included in the company’s financial statements to better evaluate the value of its people initiatives.

Shanghai Pudong Development Bank

In early 2023, SMU began working with Shanghai Pudong Development Bank (SPD Bank). SGFC uses the IWAF to quantify the impact of SPD Bank’s investment funds.

For example, SPD Bank invests in Fund A, which comprises investments in various companies across sectors. SGFC selects a proxy company from each sector (e.g., using Microsoft as the proxy company for the IT sector) and uses the IWAF to calculate the monetary impact of this company’s six capitals.

SGFC then aggregates the impact of the various proxy companies (i.e., the sectors they represent) based on their weightage within Fund A. This is a calculation of the total impact of the fund.

With the impact of Fund A now quantified, SPD Bank can assess the effectiveness of its investment. For example, if Fund A comprises $15 worth of investments in the various companies but the total impact amounts to only $10, it prompts a reassessment of whether SPD Bank should still invest in this fund.

Impact

By supplementing traditional financial accounts, the IWAF helps to provide a holistic analysis of the true cost of a company’s actions on society and enable better decision-making.

With the quantitative data, investors can also make more well-informed and future-fit decisions while governments can better manage the environmental and societal effect of companies within their jurisdiction.

Hence, the IWAF is a key tool in the transformation of the economy into a sustainable one that creates value for everyone.

Funding organisation: Singapore Green Finance Centre

Read more about this study: The alphabet soup in reporting and measuring ESG